HomeTechTesla Makes Good On Elon Musk’s Goal Of Record Quarterly Deliveries, Led By Model 3.
Tesla Makes Good On Elon Musk’s Goal Of Record Quarterly Deliveries, Led By Model 3.
The Tesla rollercoaster ride continues as the electric-car maker rebounded from weak delivery results in the year’s first three months to post its best-ever figures for deliveries and production surpassing analysts’ second-quarter expectations and making good on a goal of CEO Elon Musk. Shares rose about 7% in after-hours trading.
The company said it got 95,200 of its electric vehicles to customers during the period that ended June 30, including 72,531 units of its lower-priced Model 3 sedan. Production of Model 3s, S sedans and X crossovers during the quarter totaled 87,048, surpassing the previous quarterly high set in the final months of 2018, Tesla said in a statement.
Additionally, “we made significant progress streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position,” the carmaker said. “Orders generated during the quarter exceeded our deliveries, thus we are entering Q3 with an increase in our order backlog. We believe we are well positioned to continue growing total production and deliveries in Q3.”
“We’re actually doing well and we’ve got a decent shot at a record quarter on every level,” he said at the meeting in Mountain View, California. Tesla won’t detail its financial results for the quarter for a few more weeks.
The quarterly deliveries were higher than many equity analysts expected, including Barclays’ Brian Johnson and Cowen’s Jeffrey Osborne, both of whom anticipated about 85,000 units. Regardless, the results are far above the disappointing 63,000 vehicles Tesla delivered in the first quarter, which was far below consensus expectations and which helped push down the company’s shares.
“Not clear how much of this was due to improved outbound logistics, underlying demand, more attractive pricing, sales bonuses or pull-forward from 3Q after tax credit reduction,” Morgan Stanley equity analyst Adam Jonas said in a research note. “Based on reported deliveries YTD, if TSLA were to deliver 95k units in Q3 and Q4 that would put them at approximately 350k units for 2019, just shy of their full-year guidance of 360k-400k units.”
Whether the delivery figures are strong enough to put Tesla back into the black after a lousy first quarter that saw $702 million loss because of weaker-than-anticipated deliveries remains to be seen. The company sold $2.7 billion of bonds and equity in May to help fund capital expenses this year but it also has rising long-term debt to service, totaling about $10 billion at the end of the first quarter.
“We think Q2 vehicle sales were artificially boosted by the timing of customer purchases ahead of the 50% step-down in the federal EV tax credit from $3,750 to $1,875 on July 1, and expect to see a significant retracement in Q3 sales as a result, similar to what happened from Q4 ’18 to Q1 ’19,” CFRA equity analyst Garrett Nelson said in a research note late Tuesday.
“Heading into the earnings release, the focus becomes TSLA’s vehicle margins, which will likely benefit from improved fixed cost absorption due to higher sales volume, but suffer from less favorable mix and price cuts,” Nelson said.
Unlike conventional automakers, Tesla doesn’t use franchise dealers and handles all deliveries to customers through its own channel. As a result, the company can’t book a vehicle as a sale until the buyer receives it. That includes 7,400 undelivered vehicles in transit at the end of the quarter.
Tesla fell just over 1% to $224.55 in Nasdaq trading Tuesday, before the results were posted, and is down 33% this year. Investors were pleased by the positive surprise, however, and the stock was up more than $16 to about $241 in after-hours trading.
While Tesla’s big gains in delivery volume underscore its push to evolve from a niche manufacturer to a large-scale global carmaker, its increased reliance on the Model 3 suggests profit margins will shrink, Johnson noted in a research report last week.
“While we continue to believe that the Model 3 and S/X are headed towards a low-profit purgatory, at the same time, due in large part to regulatory credit sales, we believe that Tesla has an incentive (much as the Detroit 3 in the early 2000s) to ‘move the metal,’” he wrote. “In other words, prioritize deliveries over margins and pricing, which it appears to have done this quarter.”
Ahead of the quarterly figures, Cowen’s Osborne said: “The stock could have a mutedly positive reaction if the company meets or comes close to delivery guidance.”
However, Tesla’s earnings release will likely be a “negative catalyst for shares given our expectations that the company will fail to be profitable or cash flow positive despite the higher vehicle run rate,” he said in a research report. “We expect shares to fade into earnings in late July.”
The quarterly figures come on the heels of multiple executive departures, including Peter Hochholdinger, Tesla’s vice president of production, who left to run manufacturing for startup electric vehicle rival Lucid Motors (whose CEO is also a former star Tesla engineer). Additionally, Jan Oehmicke, head of Tesla’s European operations, and Steve MacManus, vice president of interior and exterior engineering, have also left, according to media reports.